Wage Growth Seen in Most Recent Quarter

A new workforce report by ADP offers a region-by-region breakdown of wage growth in recent months as well as what’s on the horizon. Let’s take a look at the latest findings.

April 27, 2018 – Overall wage growth increased by 2.9 percent year-over-year across all industries in the first quarter, according to the latest ADP ‘Workforce Vitality Report.’ The report tracks the same set of workers over time, which provides a more insightful picture of wage growth than overall wage growth.

The growth, down from 3.1 percent annual growth as of December, was driven by strong wage gains for workers in the information industry (5.6 percent wage growth, $41.38 average hourly wage), in the West (3.5 percent, $29.27) and from small businesses (3.3 percent, $25.47). Employees in the resources and mining industry (1.7 percent, $34.96) and in the South (2.5 percent, $25.61) had the slowest wage growth.

“In the first quarter of 2018 we saw an acceleration in wage growth for job switchers,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “Additionally, as the labor market tightens employers in some industries are paying a premium for talent with special skills. Job holders, job switchers and new entrants in the construction and information industries are all experiencing significant wage growth as employers seek to attract and retain the skilled labor these industries require.”

Among industries, information continued to lead the way for both wage level and wage growth. In addition to the top overall wage growth number of 5.6 percent, new entrants into the information field had a 7.6 percent increase. Those who successfully switched positions within the information industry had wage growth of 8.3 percent.

Employment in the information industry, however, grew just 1.2 percent. The resources and mining industry had the lowest overall wage growth, just 1.7 percent. New entrants into the field showed negative wage growth, at -3.5 percent. Employment in the resources and mining industry grew 4.2 percent.

Workers in the West continued to outpace other regions with 3.5 percent wage growth. Employees who switched firms in the West experienced 8.2 percent wage growth. Workers in the South had the lowest wage growth at 2.5 percent. By firm size, workers at small firms had the highest wage growth rate at 3.3 percent, though employment growth for small firms was just .8 percent.

The Workforce Vitality Report also revealed that more than 21.3 percent of U.S. employees successfully switched firms in the last year. The highest level of switching was from the information industry to the professional and business services industry. Of all the information workers who switched firms, 30 percent switched to the professional and business services industry.

“After six consecutive months of falling pay growth, workers got some positive news with a slight uptick in average wage growth to two percent,” said Andrew Chamberlain, chief economist at Mill Valley, CA-based Glassdoor. “We will be watching eagerly to see if this starts a trend in the opposite direction.” Retail is also under close scrutiny. “And while the holiday season is still months away, retailers are already making preparations to fill short-term positions in time for the holiday buying rush,” Dr. Chamberlain said. “Jobs typically associated with this seasonal swing in hiring, including cashiers and warehouse jobs, are seeing above-average pay growth.”

Expectations of wage increases are higher for the latest quarter, according to a new Business Conditions Survey released by the National Association for Business Economics. The report found 47 percent believe wages will rise over the next three months. That’s up from 44 percent who expressed that view in a similar survey released during the second quarter. And when asked whether they had raised wages and salaries last quarter, 47 percent said they did.

“Given the continued low rates of inflation and the ongoing pressure on profit margins, employers remain cautious when it comes to budgeting salary increases,” said Laura Sejen, managing director, rewards, at Willis Towers Watson. “While most companies are feeling little pressure to increase budgets relative to what we’ve seen in recent years, many are starting to question how those budgets are spent and whether their conventional approaches to salary planning are delivering a good return on that three percent investment.”

Among all employers (hiring managers and HR managers), 39 percent reported they will offer higher starting salaries for new employees over the next six months; 20 percent of all employers plan to increase starting salaries on job offers by five percent or more. More than half (53 percent) of employers plan to increase compensation levels for current employees before the year’s end and, similar to salaries on new job offers, 21 percent said the compensation increase for existing staff will likely be five percent or more.

“Where we’ll likely see a more noteworthy change is in the area of wages,” said Matt Ferguson, CEO of CareerBuilder. “The number of hires made each month continues to lag the number of jobs posted for key functions within organizations, and the majority of employers feel they will now have to pay workers more to attract and retain them because the talent supply is not keeping up with demand.”